Australian PSI®: Services sectors looking slower

The Australian Industry Group Australian Performance of Services Index (Australian PSI®) fell 1.4 points to 51.1 in October 2018, indicating slower growth compared to September 2018 and the average of 2018 (results above 50 points indicate expansion, with the distance from 50 points indicating the strength of the increase).

Ai Group Chief Executive, Innes Willox, said: “Services sector performance improved at a slower pace in October 2018 as sales and new orders fell. Business-facing sectors reported less growth with businesses in the finance & insurance and transport & storage industries recording lower levels of activity than in September 2018. Consumer-facing sectors in general grew at a faster pace led by health & community services, hospitality, and retail services. With the employment index of the Australian PSI® pointing to further job creation in the month, it appears that service businesses are viewing October 2018’s easing in sales and new orders and the reported drop in selling prices as a temporary wind-back from the solid growth of previous months. This suggests businesses remain hopeful of continued growth over the closing months of the year,” Mr Willox said.

Australian PSI® – Key Findings for October 2018:

The Australian PSI® has indicated positive conditions (results above 50 points) for 20 months, and stable or expansionary results for 25 months.

Three of the five activity indexes in the Australian PSI® expanded in October 2018. The employment index showed its strongest result since June 2016 (up 7.5 points to 57.3), while supplier deliveries (up 0.4 points to 53.9) and stocks (down 1.5 points to 53.5) also expanded.

Sales (down 7.0 points to 45.8 – its lowest result since August 2016) and new orders (down 5.9 points to 47.4 – its lowest result since January 2016) both contracted in October 2018 after a relatively solid run of growth earlier in 2018.

Five of the nine services sectors expanded in October 2018 (trend), with all business-oriented sectors reporting slower conditions than in September 2018. The largest of these, business & property services, slowed but continued to report broadly positive conditions due to high levels of infrastructure construction activity (down 2.0 points to 52.6).

The input prices index rose by 0.9 points to 62.8, with respondents continuing to report pressure on margins as they are unable to increase their selling prices, which declined a further 0.7 point to 45.7 in October 2018. This was a second month of contraction after price gains in the first half of 2018.

The average wages index fell by 8.6 points to 54.7 in October 2018, with the pace of growth easing from recent highs coinciding with the implementation of 2018’s minimum wage increase of 3.5% from 1 July 2018.

Background: The Ai Group Australian PSI® is a leading indicator of services activity in the Australian economy. It is a seasonally adjusted national composite index based on the diffusion indices for sales, orders/new business, deliveries, inventories and employment with varying weights. An Australian PSI® reading above 50 points indicates that services activity is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline. Results are based on a sample of around 200 companies each month.